Insight Cash Growth Dips, Revenue Rises

But sales of advanced services continued to rise for the No. 9 domestic MSO, driving Insight's revenue per subscriber up, even as it suffered a seasonal disconnect-related decline in basic subscribership.

Insight said it was holding to forecasts of $328 million in cash flow for the year. That would be about a 9-percent increase over last year, implying a strong second half, according to SG Cowen analyst Gary Farber. He translated that cash-flow forecast to $5.46 per share in 2001, up from $5.04 in 2000.

Farber said Cowen rates Insight as "neutral," because its $25 closing price last Tuesday was 16.4 times estimated 2001 cash flow — higher than the average of all cable stocks, even though Insight's cash-flow growth is below the group's average.

Insight reported cash flow of $77.1 million in the period, up 2.2 percent from $75.44 million in the same period last year. Revenue in the quarter rose to $175.3 million, up 6.4 percent from $164.7 million in the same period in 2000.

Insight chief financial officer Kim Kelly blamed the slowdown in cash-flow growth to increased system-rebuild expenses, mainly from properties acquired earlier this year from AT&T Broadband. Kelly said that of $146 million in capital spending in the quarter, $40 million went to systems acquired from AT&T.

Insight began an aggressive rebuild initiative last year and the spending is beginning to pay off, said Kelly.

"Last year, there was a lot of pressure on our systems because of the rebuilds going on," Kelly said. "In Indiana, cash flow was up 8 percent quarter-over-quarter. That is a region that is benefiting from the rebuild.

For example, about 55 percent of Insight's capital spending was "success-based" — or used to roll out services that have an immediate impact on revenue and cash flow, like digital cable, high-speed data and telephony, said Kelly.

Although the company did not release telephony subscriber numbers, the service is live in Louisville, Ky., and was slated to start on Aug. 9 in Evansville, Ind.

The MSO's Lexington, Ky., and Columbus, Ohio, systems are expected to roll out telephony later this year.

"The rebuild cycle has significantly increased our RGUs (revenue-generating units)," Insight CEO Michael Willner told analysts. "Our core strategy is to build growth through RGUs over the next five years. Our results are on target with those expectations."

Insight ended the period with 150,000 "interactive digital" customers for a penetration rate of 18 percent, up from 10-percent penetration in the same period last year. The service is now available to about 800,000 homes, up from 123,000 homes a year ago.

Insight also more than doubled cable-modem penetration. to 4.6 percent, ending the period with 73,000 high-speed data customers, up 10,000. Telephony penetration rose to 7.75 percent.

Kelly said the advanced services' rollout is beginning to show up in revenue per subscriber figures. Average revenue per subscriber rose 4.2 percent in the period.

Digital services added about $3 in revenue per subscriber during the period — up 21 percent from the prior quarter — and high-speed data added $2.20, a 30-percent advance sequentially.

"We're excited about that growth," she said.

BASIC SUBS SLIP

Though both digital and data subscribership rose in the second quarter, Insight lost about 12,000 basic customers in that time frame. Kelly attributed that decline to seasonal disconnects, mostly by college students.

Insight has about 200,000 university students in its service area, she said.

Janco Partners analyst Roger Metz said in a research report that he doesn't expect the falloff in subscribers to continue for long.

"We expect that sub adds will pick up again in the second half and that the company will not have any trouble meeting its targets," Metz wrote.

Subscriber growth should resume in the third and fourth quarters, said Kelly, especially as Insight's video-on-demand service becomes available to more customers. Of the 800,000 customers that currently have access to interactive digital service, only 120,000 can get VOD.

"We are packaging a big marketing push, not only with our existing interactive [customers], but also to drive that next group," Kelly said. "We think that will help substantially in our third and fourth quarter."

The company has held its own against direct-broadcast satellite and overbuild competition, according to Willner, who added that the interactive digital service has been able to retain the customer base even though it is priced higher than its competition.

In Columbus, Ameritech New Media is offering a 65-channel analog service for $19.95 per month, about $10 less than the comparable service from Insight. Willner said Insight isn't losing many more analog customers to Ameritech, and many customers are opting for Insight's digital service.

Insight offers a lower-tier digital service for $6.95 a month on top of the analog charge, and a top-tier digital service for an extra $10 a month. About 70 percent of customers who select digital take the top-tier package.